Sukkur IBA

University
Business Strategy

Submitted To
Dr. Adnan Kehar

Submitted By
Safi Ullah
BBA-8 (B)

Chapter 4 Review Questions

Dated:29/10/2021
 1. What is a business-level strategy?
Answer:
an integrated and coordinated set of commitments and actions the firm uses to
gain a competitive advantage by exploiting core competencies in specific
product markets

5 Business-Level Strategies:
1.) Cost Leadership
2.) Differentiation
3.) Focused Cost Leadership
4.) Focused Differentiation
5.) Integrated CL/Differentiation
2. What is the relationship between a firm’s customers and its business-level
strategy in terms of who, what, and how? Why is this relationship
important?
Answer:
Customers are the foundation of successful business-level strategies.

When determining a business-level strategy the firm determines:

1.) who will be served
2.) what needs those target customers have that it will satisfy
3.) how those needs will be satisfied

Increasing segmentation of markets throughout the global economy creates

opportunities for firms to identify more distinctive customer needs that they can
serve with one of the business-level strategies.
3. What are the differences among the cost leadership, differentiation,
focused cost leadership, focused differentiation, and integrated cost
leadership/differentiation business-level strategies?
Answer:

Strategy Source(s) of Competitive Advantage

Cost Leadership Lowest cost with a level of product features or
characteristics acceptable to the most typical
customers in the industry
Differentiation Product’s unique attributes and characteristics that
are valued by a broad group of customers
Focused Cost Leadership Lowest cost with a level of product features or

Focused Differentiation
Integrated Cost Leadership/
Differentiation
characteristics targeted to a particular customer
group or segment in an industry
Product’s unique attributes and characteristics that
are valued by a particular customer group (niche) or
segment in an industry
Products have attributes of both relatively lowcost
and unique attributes, characteristics, or features;
the level of product differentiation is less than the
pure differentiator while cost is higher than that of
the low-cost leade

4. How can each of the business-level strategies be used to position the firm
relative to the five forces of competition in a way that helps the firm earn
above-average returns?
Answer:

Strategy Dealing with the Five Forces of Competition

Cost Leadership Can compete against rivals on price Can price below rivals
to interest buyers Can absorb prince increases by suppliers
better than rivals Discourages new entrants that can’t endure
low profit margins Can reduce prices to maintain
attractiveness over substitutes
Differentiation Customers are loyal to firms offering differentiated products
Uniqueness reduces sensitivity of buyers to price increases
High margins shield the firm from losses to powerful
suppliers Customer loyalty to differentiated products deters
new entrants Unlikely to switch to substitutes when loyal to
products
Focused Cost An adaptation of the above
Leadership
Focused An adaptation of the above
Differentiation
Integrated An adaptation and combination of the above
CL/Differentiation
 5. What are the specific risks associated with using each business-level
strategy?
Answer:

Strategy Risk(s) of Selecting and Implementing

Cost Leadership
Differentiation
Focused Cost Leadership &
Focused Differentiation
Minimal investment in technology could result in
process obsolescence; firm misses change in
customers’ needs due to cost-only focus; competitors
imitate strategy
Risks:
1.) a loss of competitive advantage to newer tech
2.) a failure to detect changes in customers' needs
3.) ability of competitors to imitate the cost leader's
competitive advantage through their own distinct
strategic actions
Customers decide price differential between low cost
producer and differentiator is too large; too many
features offered; product’s means of differentiation no
longer provides value to customers; customer learning
(experience) may change their perception of the value
of differentiation; counterfeit products displace the
firm’s offerings
Risks:
1.) customer group's decision that the unique features
provided by the differentiated product over the cost
leader's good are no longer worth a premium price
2.) the inability of a differentiated product to create the
type of value for which customers are willing to pay a
premium price
3.) ability of competitors to provide products that have
features similar to those of differentiated product
4.) the threat of counterfeiting
Beyond the general risks noted for the low-cost leader
and the differentiator, focus strategies have the
following risks: Competitor “out-focuses” the focuser
by defining a narrower segment; a firm competing on
an industry-wide basis may decide that the segment
served by the focus strategy firm is attractive and
decides to pursue that segment; the needs of customers
within the narrow segment may become more similar
to all customers in the market, reducing or eliminating
the advantages of a focus strategy
Risks:

Integrated Cost Leadership/
Differentiation
1.) a competitor's ability to use its core competencies
to "out focus" the focuser by serving an even more
narrowly defined market segment
2.) decisions by industry-wide competitors to focus on
a customer group's specialized needs
3.) a reduction in differences of the needs between
customers in a narrow market segment and the
industry-wide market
Product features not sufficiently valued by customers;
product is not sufficiently differentiated; product is too
expensive to compete with low-cost leader’s products
Risks:
1) a firm might produce products that do not offer
sufficient value in terms of either low cost of
differentiation
2) these firms become "stuck in the middle":
compete at a disadvantage and are unable to
earn more than average returns